Ozzie signals Microsoft's surrender to the cloud

Microsoft must reverse its software-plus-services mantra and put services at the forefront of its vision. Even chief strategy officer Ray Ozzie admits cloud computing will be cheaper than on-premise servers. He's already preparing for the painful transition ahead.

Publicly, Microsoft talks up the merits of its 'software-plus-services' strategy. In my view the message is bunkum, even though it reflects the reality of Microsoft's business today: mostly software, with a few early-stage service offerings. But Microsoft has its message back-to-front. Until Microsoft reverses the software-plus-services mantra and puts services at the forefront of its vision, it will continue to disappoint.

I know many people want to believe Microsoft still remains in charge of its destiny and won't let cloud rivals walk all over it. But time after time, history shows that it's fresh startups, not incumbent giants, that gain leadership in new technologies and markets. I guess we're just wired to expect those who wield power to stay in place. But the truth is that, at times of change, it takes a change of leader to adapt to the new circumstances.

Recent pronouncements by chief strategy officer Ray Ozzie suggest that, despite the public bluster, Microsoft's top brass already secretly realize that they must put services, not software, at the center of their worldview (the world of the mesh, Ozzie calls it). Parse, for example, these excerpts (with my emphasis added) from a recent interview by GigaOm's Om Malik, and you'll find some surprising takeaways.

The desktop is no longer central:

"There are things that the web is good for, but that doesn’t necessarily mean that for all those things that the desktop is not good anymore. What I think is important is to re-pivot the center of what we are trying to accomplish."

Enterprise software has to be re-architected for the services era:

"...if you look at the innards of a Yahoo or a Microsoft, an MSN, or a Google, you will see the people who have designed the systems and have taken a number of the things we’ve learned in the enterprise space. We have to throw them them away, because the way that we did it in the enterprise space was more tightly coupled. We need to be more loosely coupled ... We need to develop more and better application design patterns that we give to developers that let them develop mesh-oriented apps at birth, horizontal apps that can suffer massive failures of certain aspects of their infrastructure, while still surviving."

Microsoft is now playing catch-up in cloud computing:

"I think that you'll see is over the course of this year, to 18 months, you'll see the incumbents and startups, both, do their first big volleys of services platform, apps tools, runtimes, various things. It really isn't being taken seriously right now by anybody except Amazon."

It'll be cheaper to put apps in the cloud than to run them on your own servers:

"It's an inevitable business. The higher levels in the app stack require that this infrastructure exists, and the margins are probably going to be higher in the stack than they are down at the bottom ... Somebody who is selling [business] apps is going to build in, more than likely, the underlying utility costs within their higher-level service. It will still be cheaper to do those things on a service infrastructure than it is on a server infrastructure."

Taken together, these statements — by the company's chief strategy officer, no less — add up to a huge strategic shift under way within Microsoft. They suggest that, in five years' time, the company will be unrecognizable compared to today, with services revenues taking a significant share while licence revenues dwindle.

As fellow ZDNet blogger Josh Greenbaum concludes, "Microsoft-in-the-cloud is already happening" — but he's got it wrong when he writes about "building applications that can exist in a hybrid on-premise and cloud model, and can be moved freely between the two deployment modes pretty much at will." The traffic is going to be one-way only, from on-premise to cloud, and the only reason Microsoft has to pursue a hybrid strategy at all is so that it can give its developers, partners and product lines an on-ramp to the cloud.

"From what I can gather, Ozzie and team are working on the plumbing required to create a seamless mesh that can synchronize content, services and applications across a variety of devices and user scenarios via the Web as a hub.

"Ultimately, the 'mesh' requires an overhaul of the back end to support utility computing on a grand scale. In addition, applications need to be 'refactored,' ..."

"The 'seamless mesh' concept is part of Microsoft's next-generation software platform. Of course, Microsoft cannot abandon its lucrative client/server software franchises, such as Office or Windows Vista, but Ozzie is taking a practical and measured approach to building bridges that span the client-server and services worlds. Synchronization is a key for working online as well as online in the loosely coupled, collaborative Web."

So am I saying that Ozzie is Microsoft's new leader? (Perhaps even in line to replace Steve Ballmer as CEO?)

Actually, no. What I'm saying is that the emerging services era will have a new leader, and Microsoft will lose its dominant position in computing. Just as in the case of IBM in the 90s, the best survival strategy for Microsoft at this time of change is to adjust to not being top dog anymore and instead work out how to thrive as a loyal lieutenant to the next generation.

Interestingly, Ozzie, with his Lotus and IBM background, is as well qualified for that transition as he is through his subsequent Groove role to lead the march into mesh computing. Perhaps he is the right person to manage Microsoft's inevitable but noble decline.